<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20509
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ............... to ....................
Commission file number 0-26568
USA Detergents, Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-2935430
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1735 Jersey Avenue, North Brunswick, New Jersey 08902
(Address of principal executive offices - Zip code)
(908) 828-1800
(Registrant's telephone number, including area code)
--------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was
required to file reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ___X____ No _______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Stock No. of Shares Outstanding Date
-------------- ------------------------- ----
Common 13,795,029 May 12, 1997
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
USA DETERGENTS, INC. AND SUBSIDIARIES
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
December 31, March 31,
1996 1997
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 2,373 $ 1,303
Accounts receivable, net of customer allowances and doubtful
accounts of $2,084 and $3,479, respectively 28,196 31,514
Inventories 26,989 22,896
Prepaid expenses and other current assets 5,668 4,951
Refundable income taxes 752 3,302
Deferred taxes 998 792
---------------- ---------------
Total current assets 64,976 64,758
Property and equipment - net 28,603 38,867
Restricted funds 275 275
Other assets 2,800 2,666
Note receivable 2,250 2,250
---------------- ---------------
Total assets $ 98,904 $ 108,816
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note bank payable $ 4,000 $ 10,000
Accounts payable 13,725 13,807
Accrued expenses 6,371 13,974
Revolving credit line - 29,998
Current portion of long-term debt 305 305
Current portion of capitalized lease obligations 13 3
---------------- ---------------
Total current liabilities 24,414 68,087
Long-term debt - net of current portion 30,807 1,424
Capital lease obligations - net of current portion 5 3
Deferred rent payable 1,284 1,268
Deferred taxes 1,135 780
---------------- ---------------
Total liabilities 57,645 71,562
---------------- ---------------
Stockholders' equity:
Preferred stock-no par value; authorized 1,000,000
shares, none issued - -
Common stock-$.01 par value; authorized 30,000,000 shares, issued
and outstanding 13,752,570 and 13,790,717 shares, respectively 138 138
Additional paid-in capital 27,595 27,785
Retained earnings 13,526 9,331
---------------- ---------------
Total stockholders' equity 41,259 37,254
---------------- ---------------
Total liabilities and stockholders' equity $ 98,904 $ 108,816
================ ===============
</TABLE>
See Notes to Financial Statements.
2
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USA DETERGENTS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
(in thousands, except per share information)
Three months
ended March 31,
------------------------------
1996 1997
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $ 34,067 $ 60,533
Cost of goods sold 22,908 49,901
-------------- --------------
Gross profit 11,159 10,632
Selling, general and administrative 7,569 17,063
-------------- --------------
Income/(loss) from operations 3,590 (6,431)
Interest expense - net 167 446
-------------- --------------
Earnings/(loss) before income taxes 3,423 (6,877)
Provision/(benefit) for income taxes 1,335 (2,682)
-------------- --------------
Net income/(loss) $ 2,088 $ (4,195)
============== ==============
Net income/(loss) per share $ 0.16 $ (0.30)
============== ==============
Weighted average shares outstanding 13,392 13,765
============== ==============
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Three months
ended March 31,
----------------------------------
1996 1997
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,088 (4,195)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 294 1,031
Change in the provision for customer allowances and doubtful accounts 110 1,395
Increase/(decrease) in deferred rent 81 (16)
Changes in operating assets and liabilities:
Increase in accounts receivable (3,006) (4,714)
(Increase)/decrease in inventories (5,402) 4,093
(Increase)/decrease in prepaid expenses and other current assets (1,623) 717
(Increase)/decrease in other assets (65) 134
Increase in accounts payable and accrued expenses 5,693 7,685
Increase in taxes receivable - (2,550)
Increase in taxes payable 1,169 -
(Increase)/decrease in deferred tax asset (79) 206
Increase/(decrease) in deferred tax liability 56 (355)
---------------- ----------------
Net cash provided by/(used in) operating activities (684) 3,431
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,987) (11,294)
---------------- ----------------
Net cash used in investing activities (1,987) (11,294)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (77) (77)
Net proceeds from credit facility 3,018 692
Capitalized lease repayments (18) (12)
Net Proceeds from exercise of options - 190
Increase in note bank payable 6,000
---------------- ----------------
Net cash provided by/(used in) financing activities 2,923 6,793
---------------- ----------------
Net increase in cash 252 (1,070)
Cash at beginning of period 61 2,373
---------------- ----------------
Cash, March 31, $ 313 $ 1,303
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 158 $ 348
================ ================
Income taxes $ 166 $ 7
================ ================
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 1997
1. BASIS OF PRESENTATION
The financial statements included herein should be read in
conjunction with the financial statements and notes thereto contained in the
USA Detergents, Inc. (the Company) Form 10-K filed with the Securities and
Exchange Commission on March 31, 1997. In the opinion of the management of the
Company, the accompanying unaudited financial statements contain all
adjustments necessary, consisting of only normal recurring accruals, to
present fairly the Company's financial position as of March 31, 1997, the
results of operations for the three month periods ended March 31, 1997 and
1996, respectively, and cash flows for the three month periods ended March 31,
1997 and 1996, respectively. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted from
the accompanying financial statements. Certain reclassifications have been
made to prior year amounts to conform with the presentation for the current
year. The results of operations for the three months ended March 31, 1997, are
not necessarily indicative of the results of operations expected for the year
ending December 31, 1997.
2. RECAPITALIZATION AND PUBLIC OFFERING
On January 18, 1996, the Company declared a three-for-two stock split
effected in the form of a 50% stock dividend to holders of record of the
Company's Common Stock at the close of business on January 30, 1996 and paid
February 9, 1996. Shares outstanding and per share amounts have been
retroactively adjusted to reflect the three-for-two stock split.
On June 5, 1996, the Company completed its second public offering of
300,000 shares of Common Stock which provided net proceeds of approximately
$11,791,000.
3. NET INCOME PER SHARE
Net income per share is based on the weighted average number of
shares outstanding during the periods presented. Common stock equivalents have
not been included in the computation of net income per share as the impact is
not significant.
4. REVOLVING CREDIT LINE
In December 1996, the Company entered into a credit facility
(the "PNC Facility") with PNC Bank, N.A. ("PNC") consisting of a $20 million
capital expenditure facility for the purchase of capital assets and/or
leasehold improvements and a $10 million traditional revolving facility.
Borrowings under the PNC facility bear interest, at the Company's option, at
LIBOR plus .50% to 1.5% (5.97% as of March 31, 1997) or one percent below the
prime rate of PNC. All amounts outstanding, under the PNC Facility, as of
March 31, 1997 (approximately $30 million) were subject to the 5.97%
LIBOR-based interest rate. The PNC Facility provides for all amounts
outstanding under the capital expenditure facility at September 30, 1998 to be
converted into a five year term note. Amounts borrowed under the revolving
facility become due and payable at April 30, 2000, subject to one-year renewal
extensions at the option of PNC. The PNC Facility, among other things,
requires the Company to maintain specified debt to equity
5
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ratios, current ratios, minimum consolidated tangible net worth and debt
service ratio levels. At March 31, 1997, the Company did not meet the required
financial covenants.
On March 24, 1997, the Company obtained a commitment from PNC and a
second lender to replace the PNC Facility with a $55 million credit facility.
In conjunction with this commitment, PNC extended to the Company a $10 million
bridge loan, bearing interest at LIBOR + 1.5% (7.25% as of March 31, 1997), to
be repaid from the proceed of this replacement facility. Based on the
Company's performance in the first quarter, the commitment for this
replacement has been withdrawn.
The Company is currently negotiating with PNC to amend and/or replace
the PNC Facility and the Bridge Loan. The Company is exploring alternative
sources of financing and is currently in discussions with another bank to
provide a secured financing package, which may include PNC on a participation
basis. The Company requires the availability of sufficient cash flow and
borrowing capacity to finance its operations and expansion. In order to meet
its anticipated commitments through the end of the current year, the Company
must obtain additional sources of financing. There can be no assurance that
the Company will be successful in its negotiations with PNC or in obtaining
additional financing.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net sales for the three months ended March 31, 1997 increased 77.7%
to $60.5 million from $34.1 million for the three months ended March 31, 1996.
The increase was primarily the result of an increase in unit sales of laundry
and household cleaning products, as well as sales of candles.
Gross profit decreased 4.7% to $10.6 million in the three months
ended March 31, 1997 from $11.2 million for the comparable period in 1996.
Gross profit decreased as a percentage of net sales to 17.6% in the three
months ended March 31, 1997 from 32.8% for the comparable period in 1996. The
decrease was attributable to, among other things, an increase in materials
costs of 6.9% due to incremental freight-in costs incurred during integration
of the Company's new Chicago, Harrisonville and Edison facilities,
manufacturing inefficiencies caused by a high level of production line
changeovers to meet customer demands, short production runs during the ramp-up
of new production line capacity, and increased levels of unabsorbed material
waste variances related to these plant integration issues. There were
additional costs of 7.7% of under-absorbed plant overhead costs and increased
levels of warehousing and distribution costs associated with the assimilation
of the new facilities. These costs, which began in the latter part of 1996,
continued to have a significant impact on the first quarter of 1997, and are
expected to have a continued negative impact during 1997.
Selling, general and administrative expenses increased 125.4% to
$17.1 million in the three months ended March 31, 1997 from $7.6 million for
the comparable period in 1996. As a percentage of net sales, these expenses
increased to 28.2% in the three months ended March 31, 1997 from 22.2% for the
comparable period in 1996. The increase was primarily due to increases of 1.5%
in shipping costs, 3.9% in co-op advertising and other customer marketing
funds, 1.1% in slotting fees and .3% in commissions, offset, in part, by
decreases in incentive compensation of .6% and in salaries of .3%.
7
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Interest expense-net increased to $446,000 in the three months ended
March 31, 1997 from $167,000 for the comparable period in 1996, primarily as a
result of higher average outstanding balances.
The income tax benefit has been estimated at an effective tax rate of
39% for the three months ended March 31, 1997 compared to a provision
effective rate of 39% for the three months ended March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
On August 11, 1995, the Company completed an initial public offering
of shares of its common stock, pursuant to which the Company sold 1,477,890
shares of common stock at a price of $9.67 per share, (adjusted for the
three-for-two stock split declared in January 1996). Net proceeds to the
Company approximated $12.7 million. On June 5, 1996, the Company completed a
second public offering of shares of its common stock, pursuant to which the
Company sold 300,000 shares at a price of $39.38 per share. Net proceeds to
the Company approximated $11.7 million.
In December 1996, the Company entered into a credit facility (the
"PNC Facility") with PNC Bank, N.A. ("PNC") consisting of a $20 million
capital expenditure facility for the purchase of capital assets and/or
leasehold improvements and a $10 million traditional revolving facility.
Borrowings under the PNC facility bear interest, at the Company's option, at
LIBOR plus .50% to 1.5% (5.97% as of March 31, 1997) or one percent below the
prime rate of PNC. All amounts outstanding, under the PNC Facility, as of
March 31, 1997 (approximately $30.0 million) were subject to the 5.97%
LIBOR-based interest rate. The PNC Facility provides for all amounts
outstanding under the capital expenditure facility at September 30, 1998 to be
converted into a five year term note. Amounts borrowed under the revolving
facility become due and payable at April 30, 2000, subject to one-year renewal
extensions at the option of PNC. The PNC Facility, among other things,
requires the Company to maintain specified debt to equity ratios, current
ratios, minimum consolidated tangible net worth and debt service ratio levels.
At March 31, 1997, the Company did not meet the required financial covenants.
8
<PAGE>
On March 24, 1997, the Company obtained a commitment from PNC and a
second lender to replace the PNC Facility with a $55 million credit facility.
In conjunction with this commitment, PNC extended to the Company a $10 million
bridge loan (the "Bridge Loan"), bearing interest at LIBOR + 1.5% (7.25% as of
March 31, 1997), to be repaid from the proceeds of this replacement facility.
Based on the Company's performance in the first quarter, the commitment for
this replacement has been withdrawn and the Company is pursuing other,
alternatives, as noted below.
The Company also has a loan facility of $2.75 million from the New
Jersey Economic Development Authority (the "EDA Loan"). As of March 31, 1997,
the Company had used approximately $2.5 million of the EDA Loan for purchases
of machinery and equipment and improvements to the Company's North Brunswick
manufacturing facility. The remainder is restricted for the duration of the
EDA Loan. The EDA Loan is payable in monthly installments of approximately
$26,000 through November 1, 2002. Interest on the EDA Loan is payable at a
variable rate (3.50% at March 31, 1997).
At March 31, 1997, the Company's working deficit was $3.3 million
compared to working capital of $40.6 million at December 31, 1996. The
decrease in working capital was primarily attributable to the additional $6.0
million borrowed under the Bridge Loan and the current classification of the
approximately $30.0 million outstanding under the PNC Facility as a result of
the Company not being in compliance with its financial convenants required
thereunder. Other factors that affected the decrease in working capital were
an increase in accrued expenses of $7.6 million, a decrease in inventory of
$4.1 million and a decrease in cash of $1.1 million. These changes were
partially offset by an increase of $3.3 million in net accounts receivable and
an increase of $2.6 million in refundable income taxes.
The Company is currently negotiating with PNC to amend and/or replace
the PNC Facility and the Bridge Loan. The Company is exploring alternative
sources of financing and is currently in discussions with another bank to
provide a secured financing package, which may include PNC on a participation
basis. The Company requires the availability of sufficient cash flow and
borrowing capacity to finance its operations and expansion. In order to meet
its anticipated commitments through the end of the current year, the Company
must obtain
9
<PAGE>
additional sources of financing. There can be no assurance that the Company
will be successful in its negotiations with PNC or in obtaining additional
financing.
Net cash provided by/ (used in) operating activities for the first
three months of 1997 was $3.4 million compared to ($.7) million for the
comparable period of 1996. The increase in cash provided by operating
activities resulted primarily from decreases in inventory and prepaid expenses
and, to a lesser extent, increases in accrued expenses and depreciation,
partially offset by increases in accounts receivable and refundable income
taxes.
Net cash used in investing activities for the three months ended
March 31, 1997 was $11.3 million, relating primarily to the purchase of a
distribution facility. The Company anticipates that capital expenditures in
1997 will be between $19 million and $22 million, which includes expenditures
at the Company's new distribution facility in North Brunswick, New Jersey, a
high speed trigger line, and a new computer system, as well as additional
expenditures associated with expanding the Company's manufacturing and
distribution capabilities.
INFLATION
The Company does not believe that the relatively moderate rates of
inflation which recently have been experienced in the United States have had a
significant effect on net sales or profitability.
NEW ACCOUNTING PRINCIPLE
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 128, "Earnings Per Share". This
pronouncement must be implemented for annual and interim periods ending after
December 15, 1997. SFAS No. 128 does not permit early application. When
implemented, SFAS No. 128 requires restatement of all prior period earnings
per share data. SFAS No. 128 calls for the calculation of basic earnings per
share, which is calculated using only weighted average shares outstanding
during the period and does not consider the assumed exercise of shares
utilizing the treasury stock method. In addition, SFAS No. 128 requires the
disclosure of diluted earnings per share. The historical effect of stock
10
<PAGE>
options has not been included in the computation of earnings/(loss) per share
as the impact was not material or antidilutive. The Company believes that the
adoption of SFAS No. 128 will not have an impact on basic earnings per share
as compared with previously reported per share amounts or have a material
effect on previously reported primary earnings per share as compared with
diluted earnings per share.
The Company's quarterly and annual operating results are affected by
a wide variety of factors that could materially and adversely affect revenues
and profitability, including competition from other suppliers of laundry and
household cleaning products; changes in consumer preferences and spending
habits; the inability to successfully manage growth; seasonality and
particularly a weaker fourth quarter; the ability to introduce and the timing
of the introduction of new products; the inability to obtain adequate supplies
or materials at acceptable prices; and changes in economic conditions. As a
result of these and other factors, the Company may experience material
fluctuations in future operating results on a quarterly or annual basis, which
could materially and adversely affect its business, financial condition,
operating results, and stock price. Furthermore, this document and other
documents filed by the Company with the Securities and Exchange Commission
(the "SEC") contain certain forward looking statements with respect to the
business of the Company and the industry in which it operates. These
forward-looking statements are subject to certain risks and uncertainties,
including those mentioned above, which may cause actual results to differ
significantly from these forward-looking statements. An investment in the
Company involves various risks, including those mentioned above and those
which are detailed from time to time in the Company's SEC filings.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities:
None
Item 3. Defaults Upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the period
covered by this Form 10-Q.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
USA DETERGENTS, INC.
(Registrant)
/s/ Uri Evan
May 13, 1997 __________________________
------------
Date Uri Evan
Chairman, CEO and President
/s/ Richard D. Coslow
May 13, 1997 __________________________
Date Richard D. Coslow
Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-Q for the quarterly period ended March 31, 1997, and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,303
<SECURITIES> 0
<RECEIVABLES> 34,993
<ALLOWANCES> 3,479
<INVENTORY> 22,896
<CURRENT-ASSETS> 64,758
<PP&E> 44,616
<DEPRECIATION> 5,749
<TOTAL-ASSETS> 108,816
<CURRENT-LIABILITIES> 68,087
<BONDS> 0
0
0
<COMMON> 138
<OTHER-SE> 37,116
<TOTAL-LIABILITY-AND-EQUITY> 108,816
<SALES> 60,533
<TOTAL-REVENUES> 60,533
<CGS> 49,901
<TOTAL-COSTS> 17,063
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,644
<INTEREST-EXPENSE> 446
<INCOME-PRETAX> (6,877)
<INCOME-TAX> 2,682
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,195)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> 0
</TABLE>
